Adam Smith was a moral philosopher, and economics clearly began as a discipline concerned with both normative and positive considerations. Over time, however, as economics became more "scientific," positive analysis of the consequences of economic activity increasingly crowded out normative analysis of the morality of that activity. It is now common for economists to boast that economics is "value free." (1)
The problem is not with positive economics. Without the ability of economic analysis to make reasonable predictions about the consequences of policies and to provide coherent explanations of observed economic phenomena, there would be no value to economics regardless of the value system applied. But without recognizing that moral values are embodied in economic analysis, economists severely limit their ability to understand economic phenomena and to communicate effectively what they do understand. Furthermore, when economists dismiss the moral dimensions of their discipline, they leave the field to others who have an endless supply of pronouncements on the morality of economics in general, and the market order in particular, that are as logically appalling as they are publicly appealing. Only by coupling positive economics with a willingness to engage in moral discourse can economists use their understanding to effectively defend market arrangements, and the general benefits they provide, against moral sophistries used by politicians and their special-interest clients to justify policies to protect politically favored groups against the discipline of market competition.
Unfortunately, making a moral case for markets faces a serious problem. Arguments supporting the morality of markets confront a widespread view of morality that predisposes most people to see markets as fundamentally immoral. This is not a problem that can be overcome by advances in positive economics. (2) It is our view that the most effective way to make a moral case for markets requires accepting the dominant view of moral behavior as a legitimate one, while recognizing that the superiority of markets is the result of their ability to generate desirable outcomes without relying on what is widely seen as moral behavior. This leads us to argue that markets are essential for decent and humane social order because they can be substituted for the morality of caring that is necessary for decent and humane relationships.
Our discussion of morality focuses primarily on what is commonly referred to as duty-based morality (behaving the right way out of a sense of duty) as opposed to outcome-based morality (behaving in a way that achieves the best outcomes). This does not mean we ignore economic outcomes. Obviously when assessing the desirability of behavior, the desirability of the outcomes resulting from that behavior cannot be ignored. But, as we shall argue, much of the criticism of markets results from widespread disapproval of the morality of the behavior that drives the market process, quite independently of the outcomes that are generated. Given the prevailing view of duty-based morality, even those who accept the superiority of markets at generating material comforts commonly see that superiority as so morally tainted that they are sympathetic to political action to restrict normal market practices at the cost of considerable market efficiency. (3) As Joseph Schumpeter ( 1950: 137) observed, "The stock exchange is a poor substitute for the Holy Grail."
In the next section, we consider characteristics most people see as satisfying the conditions of duty-based morality--which we call magnanimous morality--and compare it with the morality that underpins the market process which we call mundane morality--and note the emotional basis for the public appeal of the former over the latter. In our third section, we consider examples of moral hostility toward markets obscuring the benefits of the market, and relate that hostility to the persistent desire for an economic system based on magnanimous morality. Our fourth section points to the impossibility of an extended market order based on magnanimous morality. In our fifth section, we contrast the abilities of magnanimous morality and mundane morality of the market to foster the moral ideals of social harmony and human liberty, while recognizing the importance of both moralities when confined to their proper spheres. Our final section contains some concluding comments on making a moral ease for markets.
Two Kinds of Duty-Based Morality
For our purposes it is useful to distinguish between two types of duty-based morality, which we designate as magnanimous morality and mundane morality. When most people think of moral behavior, it is magnanimous morality they have in mind, and we consider it first, and in greater detail.
Magnanimous morality can best be defined in terms of helping others in ways that satisfy three characteristics--helping intentionally, doing so at a personal sacrifice, and providing the help to identifiable beneficiaries. (4) Helping others is considered magnanimously moral only if the help is intentional. Consider the well-known story A Christmas Carol by Charles Dickens. Ebenezer Scrooge ends up helping the Cratchet family, and their crippled son Tiny Tim, intentionally after he is transformed into a caring human being by his Christmas Eve encounter with the ghost of his former partner and the three ghosts of Christmas. This story, written in 1843, still invokes a strong emotional response to Scrooge's desire to help others as a result of his moral awakening.
The importance of intentions to magnanimous morality is related to the requirement of personal sacrifice. The greater the sacrifice a person makes to help others, the clearer it is that the help is being provided intentionally and the greater the morality attributed to it. In terms of magnanimous morality, the amount of the sacrifice is typically more important than the benefit created. This is illustrated in the biblical story of the widow who, by dropping two pennies into the collection box, prompted Jesus to tell his disciples "I tell you the truth, this poor widow has given more than all the others who are making contributions. For they gave a tiny part of their surplus, but she, poor as she is, has given everything she had to live on" (Mark 12:41-44, New Living Translation).
In contrast, profiting by helping others is almost always seen as an indication that the primary intention is to profit, not to do good. Rarely is highly profitable behavior seen as moral no matter how great the benefits it generates for others. There is a strong tendency to overlook the benefits from profitable activities, or even to see them as harmful to others. Despite the efforts of economists at least since Adam Smith, and the clear evidence provided by dramatic increases in both global population and per capita income over the past two centuries, the zero-sum belief that those who get rich must be doing so at the expense of others remains common.
The third characteristic of magnanimous morality--providing benefits to identifiable people or particular causes deemed to be worthy--is more likely to be considered moral than providing widely dispersed benefits impersonally and indiscriminately. Organizations soliciting contributions to fight hunger in poor countries, for example, commonly appeal to our sense of morality by offering the opportunity to contribute to a specific child in return for his or her picture and history. Another example is found in the very different reactions to philanthropists and investors. Philanthropy is seen as a moral act that can moderate the public's negative view of someone who has become wealthy, even though he became wealthy by providing far greater benefits spread over more people than his philanthropy does. Saving and investing money, in contrast, is seldom seen as a moral act even though the investor-entrepreneur surely does more to help others for every dollar saved than the philanthropist does for every dollar given away. As opposed to philanthropists, who decide what they want beneficiaries to have, entrepreneurs let the beneficiaries (consumers) decide what they want. Also, private investors provide their benefits without the beneficiaries having to lobby for them. But even though the investor-entrepreneur creates more social value than the philanthropist, the former receives no moral acclaim because his help is provided indiscriminately rather than going to clearly identifiable recipients. Finally, the investor-entrepreneur is not seen as intending to benefit others or making a personal sacrifice to provide the benefits.
Evolutionary imprinting provides a plausible explanation for the above conditions being widely seen as requirements for morality (Rubin 2003). Human evolution has taken place almost entirely while humans lived in small bands (probably consisting of 25 to 125 or so individuals) of hunter-gatherers. Survival was critically influenced by how people reacted to the behavior of each other, and those reactions with the greatest survival value evolved into emotional responses that helped enforce what became to be considered desirable, or moral, behavior. The type of behavior necessary for the mutual support and cooperation needed for survival in small hunter-gatherer bands was obviously limited, given that each band was almost entirely self-sufficient. The assistance that people provided each other was given intentionally by and to identifiable people who knew each other well. Although there were expectations of reciprocity, helping others was also motivated by a sense of personal caring and mutual sharing, without any need for formally imposed obligations on those receiving the help. True, making personal sacrifices to help others was easily seen, and established a reputation for generosity throughout the relevant community that may have been almost as...